Option Activity Alert: PGN, HAS, GDX, MYL

PGN – Progress Energy, Inc. – The energy company popped up on our scanners this morning after one strategist dabbled in Progress Energy stock, call and put options. Progress Energy’s shares fell 1.95% to $43.85 by 12:55pm despite reports that Duke Energy is buying the firm for more than $13 billion in a stock deal that, if approved, will create the utility with the largest number of U.S. customers. It looks like the options investor is taking a cautiously optimistic stance on Progress Energy, initiating a buy-write strategy while hedging the position with long puts in the February contract. The trader purchased 250,000 shares of the underlying stock at a price of $43.95 each this morning and sold 2,500 February $45 calls at a premium of $0.55 apiece. If shares rebound, the investor may gain 3.7% on the rise in shares from an effective purchase price of $43.40 – factoring in premium received on the sale of the call options – to $45.00. The shares may be called from the buy-write strategist if Progress Energy’s shares rise at least 2.6% over the current price of $43.85 to exceed $45.00 by February expiration. Meanwhile, the long puts protect the investor in case shares in Progress continue to decline ahead of expiration day next month. The trader bought 2,500 put options at the February $41 strike for a premium of $0.25 apiece. Thus, downside protection kicks in if PGN shares plunge 7.1% to breach the effective breakeven point on the downside at $40.75 by expiration next month. Progress Energy is scheduled to report fourth-quarter earnings before the market opens on February 18, 2011, which is the same day February contract options expire. News of the Duke Energy buyout of the company sent PGN’s overall reading of options implied volatility down 13.1% to 14.55% by 1:10pm.

HAS – Hasbro, Inc. – Call options on the Rhode Island-based provider of games and entertainment products are popular with investors placing bullish bets on the toy maker less than one month before the firm reports first-quarter earnings before trading begins on February 7, 2011. Shares in Hasbro are currently down 0.35% to stand at $45.91 as of 12:20pm in New York. Goldman Sachs maintained its ‘Conviction Buy’ rating on the stock last week and said Hasbro’s earnings may surprise to the upside. Traders positioning for a rally in the price of the underlying shares picked up more than 3,000 calls at the February $52.5 strike at a premium of $0.20 per contract this morning. Call buyers are prepared to make money should HAS shares surge 14.8% to surpass the average breakeven point at $52.70 ahead of expiration day in February. Approximately 4,400 calls changed hands at the February $52.5 strike thus far in the session, versus paltry previously existing open interest of just 75 contracts at that strike. The sharp rise in demand for call options on Hasbro helped lift the stock’s overall reading of options implied volatility 16.4% to 31.32% by 12:25pm.

GDX – Market Vectors Gold Miners Index ETF – It looks like one options player is taking profits off the table by buying-to-close a previously established short stance in deep out-of-the-money March contract call options on the gold miners ETF. Shares of the GDX, an exchange-traded fund designed to replicate the price and yield performance of the NYSE Arca Gold Miners Index, are up 0.35% to arrive at $56.94 as of 1:15pm. It appears that some 15,000 March $68 strike calls were sold for an average premium of $0.91 each back on December 22, 2010, when the fund’s shares were trading around $60.20. Today, the trader purchased 15,000 calls at that strike for an average premium of $0.39 a-pop. Buying back the short calls results in average net profits of $0.52 per contract under these parameters. The level of open interest in calls at the March $68 strike should fall from 16,374 lots to less than 2,000 contracts overnight if this trader is indeed closing out the large short put stance initiated at the end of last year.

MYL – Mylan, Inc. – Activity in near-term call options on the manufacturer of generic and branded generic drugs suggests some investors see shares in Mylan rising ahead of expiration day this month. The pharmaceutical company’s shares earlier increased as much as 1.00% to secure an intraday high of $22.55, but slipped lower in early afternoon trading to stand 0.20% lower on the session at $22.27 as of 12:30pm. Analysts at Morgan Stanley reiterated an ‘overweight’ rating on Mylan with a $25.00 price target on the stock last week. Bullish players itching for a rally in Mylan’s shares picked up 1,200 call options at the January $22.5 strike for an average premium of $0.43 each. Call buyers at this strike stand prepared to profit should shares exceed the average breakeven price of $22.93 ahead of January expiration day. Investors hoping to see the drug maker’s shares rally to new heights ahead of expiration purchased some 1,900 calls at the higher January $24 strike for an average premium of $0.11 a-pop. Higher-strike call buyers profit if Mylan’s shares surge 8.3% over the current price of $22.27 to surpass the average breakeven point at $24.11 by January expiration. Roughly 3,475 calls have changed hands at the January $24 strike today, which is more than two times the volume in previously existing open interest at that strike. Options implied volatility on Mylan, Inc. is up 13.1% as of 12:40pm to stand at 29.01%.

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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